After A Hot Start, Justin.tv Spins Off Socialcam, Its ‘Instagram for Video’

Post by abiekatz » Mon, Aug 29, 2011, 10:18 PM UTC

andrewcross wrote: post #3

How would this work for the investors of Justin.tv? I know that Justin.tv has a stake in Socialcam, but to go from owning 100% of the value to something less seems like a lousy deal for the investors. I suppose you could make the argument that this will enable Socialcam to grow more quickly and thus drive higher value for everyone, but it seems like quite a high risk.

Running an additional product, especially one that takes off requires a lot of resources and attention, is very difficult to manage when your primary focus is on a different business. From Justin.tv and their investor's perspective, they are able to maximize the chance of success of Socialcam while likely maintaining an equity stake. Also, the Justin.tv team can focus all of their energy on growing their primary service rather than managing multiple services.

I like the analogy that having a business with multiple very different businesses is like a multi-front war.

Post by byrneseyeview » Tue, Aug 30, 2011, 7:09 PM UTC

callmeed wrote: post #8

byrneseyeview wrote: post #6

Earlier quoted context omitted.

Justin.tv owns some of it. What they're probably doing is having Socialcam issue some stock to investors, and to grant lots options to the founding team. Imagine that SocialCam has 100 shares now. They might have the company sell 50 shares to outside investors for funding (so Justin.tv owns ~67%, but that is 67% post-money, and the total value of the stake will be the same). Then the company could allocate 50 shares…

I don't quite follow. The investors in Justin.tv now own a smaller share (or none) of SocialCam, right? How is this allowed (without approval)? And who would approve it if growth is good?

Well, they own a stake through Justin.tv. If Justin.tv makes a good deal, it will naturally be a good deal for investors.

An example might clarify it. Let's say Justin.tv thinks SocialCam is worth $1 million. So, those 100 shares are worth $10,000 each. In the scenario above, SocialCam might:

- Sell 50 shares to an outside investor, for $500K. (So there are now 150 shares. But the company is worth $500K more, or $1.5 million. $1.5 million / 150 shares = $10K per share, the original price).

- Grant options with a $10K strike price. This would dilute existing investors, and thus slightly reduce the value of their stake. But a) this is standard for many companies--they issue shares to managers, and figure that the equity incentive pays for itself through higher performance (see http://paulgraham.com/equity.html ), or b) SocialCam's founding team might exchange their Justin.tv shares/options for SocialCam shares/options. As long as investors agree on the value for both companies, that's a fair deal.

I hope that explains it. This kind of thing is usually done with board approval, after discussion with the board, so it's unlikely that anyone did anything underhanded.

Re: After A Hot Start, Justin.tv Spins Off Socialcam, Its ‘Instagram for Video’

Re: After A Hot Start, Justin.tv Spins Off Socialcam, Its ‘Instagram for Video’